Stablecoin Runs and the Centralization of Arbitrage

Yiming Ma, Yao Zeng and Anthony Lee Zhang

No 33882, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Stablecoins are cryptoassets which are designed to be pegged to the dollar, but are backed by imperfectly liquid USD assets. We show that stablecoins feature concentrated arbitrage: the largest issuer, Tether, only allows 6 agents in an average month to redeem stablecoins for cash. We argue that issuers' choice of arbitrage concentration reflects a tradeoff: efficient arbitrage improves stablecoin price stability in secondary markets, but amplifies run risks by reducing investors' price impact from selling stablecoins. Our findings imply that policies designed to improve stablecoin price stability may have the unintended consequence of increasing stablecoin run risks.

JEL-codes: G1 G2 G21 G23 G28 (search for similar items in EconPapers)
Date: 2025-05
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